Law360 reporter Bonnie Eslinger reported on the verdict Monday from the U.S. District Court for the Northern District of California in San Francisco. The reporting notes that a 12-member jury found Dillman guilty of four wire fraud counts and one conspiracy count after roughly six hours of deliberations spread across two days.

Jury Rips Apart Block Bits’ Automated Trading Pitch

Dillman and co-founder David Mata pulled in about $960,000 from roughly 22 retail investors between June 2017 and August 2018. The sales pitch was specific: Block Bits Fund I supposedly ran a proprietary bot trading about 100 digital assets across more than 30 exchanges and harvesting price differences between them.

That machine was the heart of the pitch, and prosecutors said it simply was not there. The SEC alleged Block Bits’ actual trading amounted to Mata manually placing trades through an exchange account. Yet Dillman told investors in June and July 2017 that the automated operation was already producing profits.

The sales pitch went beyond the phantom bot. Investors also heard that roughly 40% of fund assets sat in low-risk “cold storage” arrangements throwing off high returns. Prosecutors and the SEC said those deals never existed. Capital instead landed in risky loans and the AML Bitcoin initial coin offering (ICO).

By 2022, the criminal complaint pegged investor losses at roughly $508,000. Prosecutors’ case boiled down to the money trail: investors opened their wallets because they believed Dillman’s claims about technology that supposedly traded their capital and arrangements that supposedly protected it.

Co-Founder Flips as Defense Blames the Tech Guy

Mata became one of the government’s most important witnesses against his former partner. He pleaded guilty to one wire fraud count in June 2022, then took the stand against Dillman under a plea agreement while waiting for his own sentencing, according to Law360.

Dillman’s defense went straight after Mata’s credibility. Attorney Richard A. Tamor branded him a “stone-cold liar” and argued Dillman relied on what his technical partner told him about the trading operation. The defense cast Dillman as the money-and-investor guy while Mata handled the machinery behind the curtain.

The jury wasn’t buying it and convicted Dillman on all five counts.

Guilty Verdict Opens Another Fight Over Money and Prison

Now the numbers get considerably uglier for Dillman. Each wire fraud count carries a statutory maximum of 20 years behind bars and a $250,000 fine, although the actual punishment will hinge on federal sentencing rules and calculations such as investor losses. No sentencing date has been set.

Nor does the courtroom pain stop with the criminal conviction. The SEC’s civil enforcement case against Dillman and the Block Bits entities remains alive, with regulators pursuing injunctions, disgorgement, financial penalties and restrictions on participating in future securities offerings.

Block Bits was born during the wild 2017 cryptocurrency ICO boom, when trading bots, arbitrage engines and supposedly sophisticated technology became powerful fundraising hooks. Retail investors often had little practical way to look under the hood. In Block Bits’ case, prosecutors convinced jurors there was nothing under it.

Dillman now heads into sentencing, with restitution and forfeiture still hanging over the case. Mata remains in line for his own sentence, while the SEC’s unfinished civil action ensures Block Bits’ legal reckoning isn’t finished with Monday’s guilty verdict.